Thursday, August 28, 2008

U.S. Moves Toward International Accounting Rules -

It will be interesting to see how fastthis actually happens, but moving towards a single standard is great news as it will eventually result in lower transactions costs.

U.S. Moves Toward International Accounting Rules -
"The Securities and Exchange Commission moved Wednesday to allow some large American companies to begin using international accounting standards as early as next year, and to require all American companies to do so by 2016....The adoption of international accounting standards by the United States would move the world toward one set of standards, which should make it easier for investors to compare companies operating in differing regions, and make it easier for companies to raise capital in whatever market seems most attractive"
From the Economist:
"GAAP was the beancounter’s gold standard for decades, but it is now widely seen as cumbersome....For several years, the SEC and the London-based International Accounting Standards Board (IASB), which oversees the international rules, focused on steadily bringing the two sets of standards together. But it has been a struggle, largely thanks to the Byzantine nature of the American system. Mr Cox embraced the more radical approach approved this week in the belief that it would boost the competitiveness of American firms."
People will no doubt argue whether the right standard was chosen, but those things can be sorted out later if the need arises.

From Forbes:
"To ensure that the international rules meet the SEC's standards, the agency set 2011 as a date to evaluate critical milestones and decide on mandating IFRS.

The SEC's milestones include steps to ensure that international accounting rule maker London-based International Accounting Standards Board (IASB) and its trustees are accountable and independent."

What are some of the differences?

From the WSJ:
"The IFRS system is generally considered more flexible, and giving companies the choice could spell the end of GAAP, experts believe. The international standards are deemed especially desirable for large U.S. companies with foreign subsidiaries, which now must maintain two different sets of books...."Tax considerations are another potential accounting has no equivalent to U.S. accounting for inventory on a last-in, first-out basis, for instance. So-called "LIFO" accounting shields companies from heftier taxes when inventory costs increase due to inflation...."
From Yahoo (the AP):
"The IFRS system is generally considered more flexible, and giving companies the choice could spell the end of GAAP, experts believe."
From the Economist:
"IFRS allows fewer securitised assets to be kept off the books than GAAP does, for instance—a matter of import for banks."
Uh, wait, that horse just left...oh well.

Stay tuned, this one will be playing out for many years.

1 comment:

John said...

That's plenty on what others think, but how do you think that will impact companies. Too bad there's going to be some selection bias among companies using the standards. If only they would have randomly assigned companies to begin switching in waves, much easier to do statistical analysis.